You have reached your limit of free articles this month.

Enjoy unlimited access to myAJC.com

Starting at just 99¢ for 8 weeks.

GREAT REASONS TO SUBSCRIBE TODAY!

  • IN-DEPTH REPORTING
  • INTERACTIVE STORYTELLING
  • NEW TOPICS & COVERAGE
  • ePAPER
X

You have read of premium articles.

Get unlimited access to all of our breaking news, in-depth coverage and bonus content- exclusively for subscribers. Starting at just 99¢ for 8 weeks

X

Welcome to myAJC.com

This subscriber-only site gives you exclusive access to breaking news, in-depth coverage, exclusive interactives and bonus content.

You can read free articles of your choice a month that are only available on myAJC.com.

How Home Depot is winning while retail loses


The colors of retail have lately come in red for financial losses, black and white for obituaries or maybe shade of gray for the grim struggle to survive in changing times.

And then there’s orange.

As in, Big Orange, aka Atlanta-based Home Depot. The housing-centric retailer has posted a nearly 43 percent rise in revenue over the past seven years, putting it on the doorstep of $100 billion in annual sales. The run has been accompanied by strong profits and a stock value that threatens to soon surpass that of Coca-Cola.

Home Depot has prospered while many retailers shrink or even collapse. Some, like Sports Authority and hhgregg, have died. Some, like Kmart, have been swallowed up. Even an icon like Macy’s is struggling. They’ve been battered by hyper-competition, undercut by the low-price frenzy of the Net.

Even more oddly, Home Depot has grown without growing.

“We stopped building stores in 2008,” said Ted Decker, Home Depot executive vice president, in an interview with the AJC. “That seems obvious looking back, but we were the first to stop building.”

Home Depot at the time shelved plans to build 50 stores. It closed 15 stores more. Since then, store openings have been mostly in the single digits, with the current count at just over 2,200 locations.

The chain hit the brakes on new-store openings just as the recession started to shake the nation’s economic foundations, demolish the housing boom and simultaneously pound Home Depot’s business. By the end of 2009, company sales had dropped by $13 billion.

But the halt meant the company was not making its problems worse with huge new investments into a business when demand was dropping off a cliff. Not building all those soon-to-be-unneeded stores was the equivalent of cost-cutting, Home Depot executives say.

Analysts say there’s a lot more to Home Depot’s post-recession success than skirting the temptation to overbuild.

More sales per person

With almost zero growth in the number of stores, it’s more sales per location, and per customer, that are fueling the revenue rise and pumping up profits.

The average tab for a Home Depot customer has climbed 16.6 percent since the depths of the recession to $60.35. Sales per square foot of store has jumped 40.1 percent.

Some of that boost may come from more effective sales tactics.

The company doesn’t release specifics on how many employees it has in each store, but the total workforce has grown about 26 percent since 2008, to just over 400,000. Executives say the chain has tried hard to free store staffers from tasks that keep them from wandering aisles and offering to help customers.

Some revenue gains have come from being ready to snatch up what others were dropping, said Carol Tome, Home Depot’s chief financial officer.

“We estimate that we have captured fifty-one percent of the appliance sales lost by Sears,” she said.

That didn’t happen by accident. The company expanded its appliance lineup, shrinking kitchen showrooms to make room.

Other changes let Home Depot get more revenue bang for each buck worth of space. For example, a large section of mailboxes was cut in half so that the space could be used for other items, such as a display of auto parts that Home Depot had not previously sold.

Some of the added revenues could be chalked up to efficiency.

Decker, one of eight executive vice presidents under CEO Craig Menear, said Home Depot tries to get everyone pulling in the same direction, much like scullers rowing in a shell. “Have you read ‘The Boys in the Boat’ about the American Olympic rowing team in 1936? It’s a wonderful metaphor.”

When everyone is doing everything in concert to make that boat move faster, “that’s when the boat has what they call ‘swing,’” Decker said. “And that is what we want.”

Right business, right time

Another ingredient is simply being in the right business at the right time. While new home construction was savaged by the bust and has not fully recovered, Americans are fixing, remodeling and tinkering with their properties more than ever.

The recovery of home values, which are up sharply in many metro areas including Atlanta, makes such projects more worthwhile.

All of which plays into a home improvement chain’s hands.

“In retail, timing is everything; if you catch a wave, that is great,” said Marshal Cohen, chief industry analyst at the New York-based NPD Group. “The cycle of housing is critical to them. And they are in the right place at the right time. They are somewhat insulated.”

Even imbalances in the market have worked to Home Depot’s advantage. For a range of reasons, the inventory of for-sale homes has been stubbornly low, meaning millions of homeowners are not selling homes selling but rather staying put and spending on what they have.

“We are more nest-centric,” Cohen said. “We are all doing more things at home. Yes, we travel a lot, but when we are not traveling, we are spending more money at home. Now, fifty-one percent of the meals in restaurants are coming home.

“We need to upgrade our home, to make better investments in it or buy a new one.”

Decker said Home Depot doesn’t aspire to be the cheapest place to find a screwdriver or other one-off items. It’s more interested in filling project lists and selling better-quality tools and machines for repeat use.

“You want a drill, you want a lawnmower, you want a can of paint – you are going to find the best product,” he said. The idea is to link the Home Depot name to that idea.

“Consumer Reports recommends twenty-four lawnmowers and we have eighteen of them,” Decker said.

Lowe’s also bucks trend

Home Depot isn’t entirely alone bucking the retail tide, of course.

Archrival Lowe’s too has a huge reach, with 2,375 stores and more than 290,000 employees. It has carpeted many metro areas, including Atlanta, with competing locations. But despite being much older – it was founded in 1946 – the North Carolina-based company remains a distant second financially.

Lowe’s also has had steady revenue growth in recent years, to $65 billion last year, compared with Home Depot’s $94.6 billion.

But any big retailer with massive investments in bricks-and-mortar seems at risk in the world of eBay and Amazon, where a rival can offer what looks like the same product without bothering to spend money on stores, electricity and knowledgeable sales staff.

And any customer – even one wandering the aisles of Home Depot – can whip out a smartphone and price-compare.

Like Walmart, Home Depot tries to avoid the drumbeat of temporary discounts – the on-again, off-again sales meant to lure customers, Decker said.

Such an approach can be costly to the retailer. Moreover, customers can feel whipsawed and even exploited – looking for items that were on sale and now cost more, or seeing the item they just bought listed at a discount.

“We don’t play the high-low game,” Decker said.

Home Depot is building its own web presence, with more than half of marketing dollars now spent digitally. Online business accounts for more than 5.8 percent of total revenue and it’s rising.

Pick up, buy more

But just as crucially, 45 percent of the items purchased online are picked up in a store and 25 percent of the time a customer buys something else while they are there, noted Tome, the chief financial officer.

Home Depot encourages the trend by giving stores credit for online orders that come from nearby and figuring them into bonuses.

And for a large – if not dominant – chunk of the home improvement business, the Net is really not a rival.

Customers often are not shopping for a specific item they can get anywhere — say, a hammer — but rather buying tools to do a particular job. They may not even know for sure what they need.

“We are a project-driven business,” Decker said. “We are not an item-driven business.”

Retail analyst Cohen said that’s a key reason for HD’s success in the age of Internet buying. One purchase may not do the job, which is why pick-ups in the store turn into more sales.

“You order an item online and the item turns into a project,” Cohen said. “If you watch somebody shop at Home Depot, they are figuring it out as they go.”



Reader Comments ...


Next Up in Business

App lets kids, distant loved ones read together
App lets kids, distant loved ones read together

MIAMI — Helping military families enjoy story time together was the inspiration for Caribu, an app enabling children and their loved ones far away to read together. Caribu started out as a class project in London. Alvaro Sabido’s MBA classmates at Imperial College in London went their separate ways after commencement, and Sabido later decided...
‘WannaCry’ victims, stop being ‘lazy’ with updates, expert says

A high-profile “ransomware” attack that affected more than 200,000 worldwide could have been avoided if computer users would stop being “lazy” and update their computers, a local cybersecurity expert said. Florida Cybersecurity Center director Sri Sridharan says the growth of the digital currency known as bitcoin makes it easier...
S8’s only shortcoming is easy to put your finger on

Flagship phones are interesting. They are top of the line and expensive — and we can’t get enough of them. Every year companies like Samsung and Apple release a new model of their super deluxe smartphone, pricing them at $750 and up, and every year or two we line up around the block to buy the shiny new one. Last year was not a great one...
They predicted the ‘WannaCry’ cyberattack, so how come few listen?
They predicted the ‘WannaCry’ cyberattack, so how come few listen?

Misha Govshteyn and his colleagues at the cybersecurity start-up Alert Logic dropped all their projects earlier this year, except for one they deemed a graver threat than the rest. Someone had stolen never-before-seen hacking tactics from the National Security Agency and posted them online. Working in shifts for 36 hours straight, dozens of Alert Logic...
It’s a bird, it’s an … electric airplane?

The startup Who they are: Wright Electric, a startup backed by Y Combinator in Mountain View. What they do: Electric airplanes. Why it’s cool: Electric cars are commonplace around the Bay Area, Tesla is working on an electric semi-truck, and now Wright wants to take that technology to the sky. The founders say going electric will make air travel...
More Stories